TEXT Economic Crisis Ends Years of High Growth Asian countries achieved outstanding economic performance for several decades before the economic crisis.

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Presentation on theme: "TEXT Economic Crisis Ends Years of High Growth Asian countries achieved outstanding economic performance for several decades before the economic crisis."— Presentation transcript:

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TEXT Economic Crisis Ends Years of High Growth Asian countries achieved outstanding economic performance for several decades before the economic crisis occurred. Asian developing countries attracted almost half of the world total capital inflows and their share in world exports has nearly doubled reaching almost one-fifth in the last decade. The developing and emerging market economies of Asia have been a major engine of growth in the world economy. Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market

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The causes of the currency crisis that erupted in Thailand in the summer of 1997 and then spread to neighboring countries, are various and differ for each country.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market The Crisis Is Not Over Various policy measures have been announced and executed in Thailand and Korea, both of which have strictly adhered to IMF-supported programs.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market While the Asian economy regained stability from impending economic collapse in the later part of last year, the possibility of devaluation of the Chinese yuan and the rapid depreciation of Japanese yen will be important variables affecting the recurrence of similar economic crises in Asia.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market The recent depreciation of the yen was brought about by the slump in the Japanese domestic market and the delay of financial and banking system reforms. There is a possibility that a further drop in the value of the Asian currencies could lead to the yen’s sharp decline and this, in turn, would result in the recurrence of a currency crisis in the Asian countries.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Competitive Positions and Relations Among Asian Countries Likely to Change The economic crisis in Asia and the fall in currency values have affected the competition among countries in the world markets through a change of competitive factors such as the exchange rate, interest rate, and real wages. Also, Asian countries’ economic fundamentals have changed.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market However, the continuous depreciation of the yen and the devaluation of the yuan could greatly influence the price competitiveness of the Asian countries involved in the currency crash. That is, Asian countries with a devalued currency will not enjoy any improvement of price competitiveness if a sharp depreciation of the Japanese or Chinese currencies occurs.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Difficulties in Increasing Export Earnings The Asian countries’ deep recession, high interest rates, financing difficulties, and high inflationary pressure, prevent them from taking advantage of depreciation to increase export earnings. While these hardships have been difficult for all the nations and their peoples to deal with, they are simultaneously opportunities for the countries to enhance their competitiveness and, accordingly, increase export earnings.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Another reason why the sharp depreciation in Asian currencies has not coincided with an increase in the region’s exports is related to the instability of the trading system which includes a decrease of export financing and the difficulty of opening L/Cs (letters of credit) to import raw materials for export processing.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market The sudden increase in exports in certain products from East Asian countries may spur trade disputes between Asian countries and their major export markets.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market How the improvement of Asian countries’ competitiveness can increase their exports to ensure a better balance of payment depends on the elasticity of import demand of Asian export goods in the world market. The elasticity of overseas demand for Asian exports is considered to be low due to the fact that Asian countries compete with one after another, rather than with developed countries in the international market.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market More Active International Cooperation Will Stabilize the Asian Economy The crisis in Asia is expected to have a great impact on economic cooperation among Asian countries themselves. Japan and newly industrialized economies (NIEs), which lead foreign investment in Asia, may reduce domestic and overseas investment.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Despite the changing economic environment, most Asian countries will enjoy limited benefits of the strengthened price competitiveness because Asian countries, excluding Japan and NIEs, have a similar trade pattern. That is, the exchange between raw material and capital goods in intra- Asian trade and exchange between consumer goods and raw material and capital goods.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Asian Economic Situation Largely Influenced by Changes in the Yen and Yuan One of the most important factors for the stabilization and recovery of the Asian economy is the stabilization of the value of Japanese and Chinese currencies.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market Stabilization of the yen, and further devaluation in China depends on how the American authorities perceive the currency crisis in Asia. It is still difficult to expect good prospects for the Asian economy in the near term.

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Unit Five Asia’s Economic Crisis and Changing Competitiveness in the World Market In order to connect the improvement of price competitiveness brought about by the currency depreciation to increased export earnings, foreign debt repayment and rehabilitation of the economy, international cooperation is essential as are internal economic reforms in Asia. (from KIET Economic Review)